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Obama gets tough on US auto industry

Economic growth, Financial Events, Leverage, Oil markets
By Paul Hodges on 30-Mar-2009

There had been speculation that President Obama’s mid-West background might tempt him to take a soft line on the troubled automotive industry. But his comments on Thursday that there has been “a lot of mismanagement of the auto industry over the past several years”, suggested this was unlikely. Today’s news confirms it:

• GM’s CEO has been fired, along with some other Board members
• GM has to provide another business plan within 60 days as a pre-condition for further funding
• Chrysler have been told to finalise the merger with Fiat within 30 days, if they wish to receive further funding
• The threat of bankruptcy still hangs over both companies

The core issue is summarised in the above chart from TheChartStore. US auto sales are currently at an annualised rate of just 9 million units. During the 2003-7 boom period, they averaged almost double this amount. Even in the 1991 recession, they only dropped to 12m units.

The new President’s tough line suggests that he, like the blog, does not expect a quick, V-shaped, recovery back to 2007 levels.